Monday, February 11, 2008
Wild, Wild West
The real estate market is uneven and unpredictable at best (in my opinion). I was astonished to learn the NAHB "suggests" the bottom of the housing glut will be here this summer. I am not saying I disagree with them in general terms, I just think when you make a statement like that you need to qualify what market you are talking about. I think they mean the "average" market. I don't know about you but I don't give a darn about anyone else's market except the one's that I am investing in! Where I live in Naples, Florida, I agree and believe the worst will be behind us by the end of summer. But just a stone's throw from here, namely Fort Myers, their bottom is a year or two off in my humble opinion. The Fort Myers market has about 3 years of supply at current buying rates. Maybe the Fed's new interest cut and the Govt's tax rebate will shorten that time but I doubt it. Speaking of the Fed and my Wild Wild West title, the reduction in interest rates should lubricate the real estate market much like alcohol in a saloon on Friday night. I am not predicting a return to those heady days (daze) of '04 and '05 where things were completely out of whack in terms of real value versus prices paid. Let's face it, cheep money (for qualified credit risks) will aid (as in speed up) in the absorption of homes for sale. Since this is my column, I will get away from "just the facts mam" and insert my biased opinions for a moment; cheap money is not what this country needs right now as inflation is rampant and cheap money today will only delay the pain we must go through until later...plus interest of course. Heck, the "party" has not even started and I am dreading the hang-over. Okay, enough of my Saloon analogy.Lately, I am being invited to many meetings with developers and investors that have "deals" to pitch/sell to me or investors I know. There are so many "deals" out there it can be quite a challenge to keep them all strait. Of course one man's deal is another man's curse. The main keys to most of these deals is; how much cash do you have and how long can you hang on. The answer to these two questions is the difference between making money and losing money. The difference between making money and making a lot of money is duration of the holding period. What I am trying to do is sift through the deals as they are presented and try to determine the quality of the land in terms of location and proximity to essential services. Just in case I seem to be rambling on with out making sense, what I am trying to say is one acre in town is worth more than a hundred acres in the Everglades both in terms of value and in terms of demand for the property.Deals in good, and I mean really good, locations that have flexibility of use and something unique about them will return your money the fastest. Poor quality land, as in way out there, and the allowable uses are just like everyone else's will take a long time for you to see a profit. So in these days of reminiscent of the Wild Wild West try to look at each deal for quality and not on some else's "projected profit". As always, quality deals are hard to find and they often may not look like a deal, in terms of price, at first glance. If you are not sure about the price, look back to 2002 prices and use that as a rough guide to determine value, keeping in mind that you may need to compare the subject property to a better location to get make up for growth that has improved the quality of many properties since 2002.Keep your powder dry and your eyes peeled. Bang-Bang.